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ALTERNATE ANCHORS

Owners look beyond department stores to attract shoppers to malls

BY DEBRA HAZEL

Until recently, replacing a department store anchor with a sporting goods chain, a bookstore or, heaven forbid, a discounter, was a sure sign that a mall was in trouble. Not anymore.

These days developers are bringing in tenants they never would have dreamed of to showcase their projects: Barnes & Noble, Galyan’s, Ikea. And not all the new faces are retailers, either. In some cases, a restaurant row has replaced the venerable department store.

The Macerich Co. is thrilled that a former Wards store will become a Target at its Lakewood (Calif.) Center by year-end.

That’s a major shift in industry thinking, says Dane F. Smith, CLS, senior vice president and director of leasing at Santa Monica, Calif.-based Macerich.

“Fifteen years ago Wards to Target would have been seen as downgrading,” he said. “Now it’s a ‘Wow!’”

An additional bonus is that the new anchors are undoubtedly paying higher rent than the department stores they’re replacing. With its long-term deals and older units, Wards often was paying rents in the single digits.

“The economics are usually better than with department stores,” said Stephen D. Lebovitz, president of development firm CBL & Associates, though they’re not paying as much as in-line stores, he added.

Some of the opportunity for these new anchors comes from the failure of the old. Wards closed at Lakewood as part of its liquidation.

“Wards was a niche that didn’t need filling and was getting hammered on all sides,” said Smith.

Another department store would not have worked in any case, he says, because the 2.1 million-square-foot mall already has J.C. Penney, Macy’s, Mervyn’s and Robinsons-May, the outgrowth of a decades-long trend toward increasing the number of fashion-oriented anchors at regional malls.

Alternative anchors are certainly welcomed at malls by department stores that have survived industry consolidation and are loath to see direct competitors at the same center. When Chattanooga, Tenn.-based CBL & Associates Properties replaced J.C. Penney with Target at Citadel Mall, Charleston, S.C., none of the existing anchors — Belk, Parisian and Sears — objected, said Lebovitz. “It depends on the mall, but in that situation, it made sense.”

Wal-Mart, for a slightly different demographic, can also work. Other attractive anchors are sporting goods chains, with Dick’s Sporting Goods, Galyan’s, REI and Scheel’s All Sports taking spaces of more than 50,000 square feet.

CBL is building a Dick’s at both East Towne and West Towne Malls, Madison, Wis., said Lebovitz. Both units will be built on former Boston Store sites and will open in the fall of 2004.

It’s not that malls have totally turned on department stores, of course. On the contrary.

“We never opt not to put in a department store,” said Richard Green, vice chairman of U.S. operations at Westfield America Trust. “They are the main backbone of malls, and we see that continuing. But we also take the opportunity to add to the center with other types of anchors.”

Taubman’s Mall at Millenia features a ‘restaurant row.’

Adding restaurants is more of a challenge, because it forces landlords into a new business. And unlike retail leasing, similar uses can’t be put together, notes Richard Strauss, a vice president of leasing for Taubman Centers, which has created restaurant clusters at International Plaza, Tampa, Fla.; The Mall at Millenia, Orlando, Fla.; and the soon-to-come Stony Point Fashion Park, Richmond, Va.

“You want to have a nice broad selection of restaurants, with seafood next to Mexican, for example,” said Strauss. “You also want a nice selection of offerings and price points, so that you are giving great lunch values and a great dinner experience.”

Clustering restaurants is much easier with new development than with a retrofit, he says, though the effort would still be worthwhile. A grouping of four to six eateries could produce dollar volumes similar to those of a more traditional anchor.

“Plus, you’re bringing in the customer for another reason,” Strauss said. “Your anchor is a whole new use that brings people together at a different time.”

Ikea has also taken anchor space at malls, including Southbay Pavilion at Carson, Calif., the 936,000-square-foot super-regional built by Continental Illinois Properties, Chicago. The chain will also anchor Mall of America’s expansion.

Unconventional anchors as large as that aren’t easy to add on, however.

“You pretty much have to go in and redo the configuration” for such an anchor, said Robert A. Michaels, president and COO of Chicago-based General Growth Properties. “But, having said that, the economics are favorable to reconfigure the space.”

At Ala Moana Center in Honolulu, General Growth is opting not to replace a vacating Penney with any anchor at all. Instead, the company is taking back the space to house an additional 20 to 25 specialty stores, says Michaels.

Entertainment is another possibility, reversing the trend from the early 1980s of moving theaters to outparcels.

“I can’t tell you how many theaters I moved out of the malls,” Macerich’s Smith said, a bit ruefully. “Then, we got into the late 1980s and early 1990s. We lost some uses, such as fabric stores, pet stores, office supplies and musical instruments, to the category killers. And we now needed to fill a different niche.”

A newly shut Penney unit at Tysons Corner Center, McLean, Va., will be doubled in size to house a cinema, a food court, specialty retail shops and restaurants.

The giant bookstores qualify as anchors because they serve as major magnets for drawing customers to shopping centers, owners say.

“There aren’t that many anchors,” said John Anderson, president of Rochester, N.Y.-based Wilmorite, which owns Tysons Corner. Bloomingdale’s, Hecht’s, Lord & Taylor and Nordstrom anchor the 2 million-square-foot mall, while Macy’s and Neiman Marcus anchor Tysons Galleria across the street, offering few department store possibilities. “This was a way to add a significant entertainment component.”

Barnes & Noble and Borders are also much sought after, given their drawing power.

Could supermarkets and hypermarkets be next? As mall anchors, they are common everywhere in the world except the United States and Canada. Special escalators accommodate shopping carts that shoppers can wheel around the mall, and in Australia centers even have refrigerated storage facilities where shoppers can stash perishables while they shop elsewhere, notes Green of Westfield America, whose parent, Westfield Holdings, owns centers in its native Australia as well as in New Zealand and the United Kingdom.

But only a handful of U.S. regional malls, including Gelson’s-anchored Westfield Shoppingtown Century City, Los Angeles, include supermarkets. There is a Ralph’s unit across the street from Westfield’s Horton Plaza, San Diego. For the most part, though, U.S. consumers have segregated their “needs” shopping from their “wants.”

“It’s just a conditioning process,” explained Green. “As these properties become more mature in nature, you’ll see over time that supermarkets will consider going to centers.”

General Growth’s Michaels agrees that malls could look more kindly on supermarkets in the future.

“We would consider them under the right conditions,” he said. “As times change, ideas have to change.”

But accommodating the delivery, parking and storage needs of a supermarket would involve substantial reconfiguration for a traditional mall, several developers note. A smaller niche player could be easier.

“A Wild Oats or Trader Joe’s would be more in keeping with mall-type tenants,” said Lebovitz.

Meanwhile, as landlords mull a leap for supermarkets from open-air centers to malls, department stores are looking to jump in the opposite direction. With only two new regional malls opening this year, department stores have to look elsewhere to fill their own expansion needs, and they are opening units in open-air community and lifestyle centers (SCT, May 2003). Federated and Saks are among those that have done this.

“We’ve done deals with May Co. in Utah [at the Family Center at Riverdale] and J.C. Penney,” said Daniel B. Hurwitz, executive vice president of Cleveland-based Developers Diversified Realty, which owns or manages more than 400 community and lifestyle centers. Deflation is putting pressure on department stores to increase their comp-store sales, and one way to do this is to open in new formats, he said.

In these new locations, department stores find themselves sharing centers with the likes of Best Buy, The Home Depot, Kohl’s, Lowe’s Home Improvement and

Wal-Mart.

“All told, it’s a wonderful format, packaging the best of all retailers,” Hurwitz said.

But could the change in anchor configurations cause centers to lose their identities? Might consumers become confused about what to find where?

“The lines of distinction between regional mall and open-air format are blurring,” said Hurwitz. “But that’s a direct result of a shift in consumer preferences. Consumers no longer want to spend all day browsing.”

And that means that shopping centers may truly go back to their original intention, providing one-stop shopping — from eggs to Escada.

“Go anywhere in the world but the United States, and you have a full range of goods and services,” Green said. “If we’re the cities of the suburbs, why not have everything under one roof?”

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